The current HMRC consultation could cause further confusion to owners and investors in hotels and pubs over tax allowances
Capital allowances are a valuable form of tax relief in the industry, and are the only tax relief allowable on the depreciation of capital assets. Claimable values have been under attack over the past few years in legislative changes that have had an impact on hotel owners, including the unexpected abolition of hotel allowances which was announced in 2007.
It seems that HMRC is still concerned about perceived losses to the Exchequer from this relief, so on 31 May 2011 a consultation document was published on "Capital Allowances for Fixtures" with responses required by the end of this month.
Owners and investors in hotels and pubs will need to consider whether the proposed rule changes for future transactions are a reasonable response to HMRC's concerns. If enacted, they will have a limited period of time to consider whether they have taken full advantage of their tax relief on past expenditure.
The consultation proposes measures for dealing with two particular technical issues that HMRC sees as causing losses of tax revenue under the present regime.
● Delays of property owners or investors claiming capital allowances which can result in an inability to establish whether or not past owners have claimed. This can result in potential double claiming of allowances on the same assets.
● Acceleration of capital allowances by a seller fixing a negligible or nil disposal value on the sale of the asset and potentially accelerating the tax relief on the asset.
HMRC has proposed mandatory pooling of tax allowances within one or two years of incurring qualifying expenditure. This could also apply to past expenditure, meaning that proposed changes enacted for April 2012 will provide a maximum of two years for ensuring all tax claims are made in full and up to date to prevent permanent loss of tax relief.
Also proposed are measures restricting the disposal value on assets to the tax written down value on any sale, and a mandatory notice of the agreed value of the fixtures as a condition of any future purchaser claiming capital allowances on them.
The changes to the rules will largely just impose further regulatory and compliance burdens on the industry. This is galling because the changes proposed are already covered by current legislation.
There are already strict requirements for proof relating to claims made by previous property owners, which were supported in a recent capital allowances Tax Tribunal decision. The current act also provides for general anti-avoidance measures which encompass transactions that create a tax advantage.
HMRC does not have the resources to effectively police the regime already in place to deal with those exploiting these issues, and the industry may well suffer as a result. Inevitably there is no guarantee that the proposed changes to the legislation will make much difference as they are largely little different to those enacted in the past.
When certain investors and advisors have only just come to terms with the implications of the present legislation, confusion and misinterpretation around this issue in future asset transactions can only increase.
Should you respond?
Most advisers in this field, and property investment bodies, have been invited to input directly on these changes by the appropriate HMRC personnel. They are likely to be issuing their own responses to the consultation and asking clients for their input.
Industry owners and investors should consider anything they receive on the matter from their advisers, and comment as necessary so the industry's concerns are voiced.
Those of you familiar to the British Association of Hospitality Accountants (BAHA) may wish to respond through the body's tax committee. Otherwise, we will be compiling our own response to the consultation and commenting in a special issue of our Bottom Line Thinking newsletter at www.bankingtaxfinance.com.
Andy White is a consultant with Davis Langdon.